yield-stockphotoBecause all of us are destined for the great beyond, all of us will one day need the services of a death-care company.

StoneMor Partners LP (NYSE: STON) is one of those companies. StoneMor is the largest cemetery owner in the United States. It owns over 300 cemeteries located in 28 states and Puerto Rico.

In addition to providing real estate for the final repose, StoneMor provides a plethora of related services. These include all the accoutrements – caskets, grave markets, vaults, and maintenance. Funeral home services, including cremation, are another offering. StoneMor is a one-stop shop in the death-care industry.

[ad#Google Adsense 336×280-IA]That StoneMor is a one-stop shop is unusual. The death-care business is highly fragmented.

There are roughly 9,600 cemeteries and 22,000 funeral homes.

Most are small family-run businesses. The industry is ripe for consolidation.

Indeed, consolidation is StoneMor’s growth engine.

The death-care industry grows at a predictable 2% annually.

StoneMor, on the other hand, grows revenue 11% annually on average. StoneMor has turbo-charged its growth by buying and consolidating less-efficient operators. In the past three years, the cemetery count has increased to 303 from 263. The funeral home count has increased to 99 from 28. Since 2004, StoneMor’s annual revenue has grown to $260 million from $89 million.

A Deeper Look at StoneMor Stock

Revenue should continue to grow at a double-digit annual rate for the distant future. Acquisitions will keep the needle moving, as will the nature of the business.

Customer loyalty runs high for death-care providers. When one family member is buried in a cemetery, others are likely to follow. Forty percent of StoneMor’s sales leads result in a presentation. One-quarter of all presentations result in a sale.

Demographic trends also point to growth. The U.S. Census bureau estimates Americans aged 65 and older will grow to 88.5 million by 2050. That’s more than double the 40.2 million in 2010. By 2030, nearly one in five U.S. residents will be aged 65 and older.

Because StoneMor is organized as a master limited partnership (MLP), it exists to deliver high-yield distributions. Since 2005, StoneMor’s distribution has increased each year. What’s more, the distribution is frequently increased multiple times during the year. StoneMor CEO Larry Miller recently stated his goal is to increase the distribution each quarter through 2015.

StoneMor’s distribution currently yields 9.7%. That yield will grow as the distribution grows. If Miller is true to his word, StoneMor should be paying $0.66 per unit quarterly, or $2.64 annually, this time next year. Based on the prevailing unit price, investors should expect a 10% yield if they buy in today.

StoneMor stock has been a High Yield Wealth recommendation since August 2011. I’ve been satisfied with the distributions. Occasionally, I’ve been frustrated with the unit price performance. StoneMor stock, quite frankly, is frequently the butt of erroneous commentary. Financial-reporting complexities due to GAAP reporting requirements leave investors flummoxed.

Don’t be swayed by naysayers. GAAP reporting requirements mask economic reality. The reality is that StoneMor is a sound cash-generating business, which it proves year after year.

— Steve Mauzy

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Source: Wyatt Investment Research